BRADENTON, Fla. — The Alabama Supreme Court Friday denied a motion by JPMorgan and other defendants to dismiss a lawsuit that was filed by Jefferson County in November 2009.
The ruling paves the way for the suit to move forward against JPMorgan, Blount Parrish & Co., Charles LeCroy, Douglas MacFaddin, Larry Langford, William Blount, and Albert LaPierre for their roles in the sale of the county’s $3.2 billion of variable- and auction-rate sewer debt and related swaps.
The county’s suit charges “fraud and fraudulent suppression, conspiracy, and unjust enrichment against those who have brought the county and its citizens to the brink of financial disaster while lining their own pockets.” The county is demanding a jury trial.
The suit is largely based on evidence culled during SEC investigations and federal criminal court cases against Langford, the former county president who orchestrated the sewer deals, Blount, an Alabama bond dealer, and several JPMorgan bankers who are still being pursued by the SEC in court.
A week before the suit was filed, JPMorgan agreed to settle allegations of fraud and other charges with the Securities and Exchange Commission over Jefferson County’s deals, most of which were sold by JPMorgan. The bank also was counterparty to most of the swaps.
Though JPMorgan did not admit or deny the charges, the bank agreed to pay Jefferson County $50 million, pay $25 million into the SEC fair fund for harmed investors, and to forfeit more than $647 million in swap termination fees the bank claimed the county owed. The SEC later awarded the $25 million from the fair fund to the county.
The sewer warrants and swaps soured after the market meltdown, liquidity support dried up for variable- and auction-rate securities, and insurers were downgraded. The sewer system revenues were not enough to repay the resulting higher penalty interest rates and the accelerated principal payments.
The county has since defaulted on the warrants. Most of the sewer debt remains outstanding and held by banks.
